CANADA FX DEBT-C$ nears a seven-week low on NAFTA deal uncertainty

(Adds strategist quotes and details on activity, updates
prices)
* Canadian dollar at C$1.3183, or 75.86 U.S. cents
* Loonie touches its weakest since July 20 at $1.3208
* Bond prices mixed across a steeper yield curve
* Canada-U.S. 10-year spread reaches widest in five weeks
By Fergal Smith
TORONTO, Sept 4 (Reuters) - The Canadian dollar weakened to
a nearly seven-week low against its U.S. counterpart on Tuesday
as an uncertain outlook for the NAFTA trade pact weighed on the
currency and investors awaited an interest rate decision this
week by the Bank of Canada.
Canada and the United States ended talks to revamp the North
American Free Trade Agreement on Friday without reaching a deal.
Canadian officials are due to resume talks with their U.S.
counterparts on Wednesday.
Investors have become less optimistic about a deal being
reached over "the next little while," said Erik Nelson, a
currency strategist at Wells Fargo. "I don't think people are,
at least in my view, concerned that it won't happen but it is
just more the near term uncertainty."
Canada sends about 75 percent of its exports to the United
States, so its economy could be hurt if a deal is not reached.
The Bank of Canada has worried that an uncertain trade
outlook will hurt business investment. The central bank is
expected to leave its policy rate unchanged at 1.50 percent on
Wednesday, a Reuters poll showed.
At 3:21 p.m. (1921 GMT), the Canadian dollar was
trading 0.7 percent lower at C$1.3183 to the greenback, or 75.86
U.S. cents. The currency touched its weakest level since July 20
at C$1.3208.
The pace of growth in Canada's manufacturing sector eased in
August for the second straight month as slower growth in new
business offset the strongest expansion of production volumes in
nearly eight years, data showed.
Canada's trade data for July is due on Wednesday and the
August employment report is due on Friday.
The U.S. dollar strengthened against a basket of
currencies as concerns about a possible escalation in a trade
conflict between the United States and China prompted investors
to dump emerging-market currencies.
The price of oil, one of Canada's major exports, was
supported by the evacuation of two Gulf of Mexico oil platforms
in preparation for a hurricane. U.S. crude oil futures
settled 0.1 percent higher at $69.87 a barrel.
Canadian government bond prices were mixed across a steeper
yield curve, with the 10-year falling 8 Canadian
cents to yield 2.238 percent.
The gap between the 10-year yield and its U.S. equivalent
widened by 3.7 basis points to a spread of 66.2 basis points in
favor of the United States, its largest gap since July 30.
(Reporting by Fergal Smith; Editing by Susan Thomas and Peter
Cooney)